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Pension Plan Design Choices

1. Defined Benefit Pension Plan

2. Target Benefit Pension Plan

3. Money Purchase Pension Plan

4. Profit Sharing Plan

5. 401(k) Plan

6. Employee Stock Ownership Plan

7. SEP

8. Simple Plan

1. Defined Benefit Pension Plan

By setting a projected annual retirement benefit goal for determining annual contributions, a Defined Benefit Pension Plan justifies the largest possible contribution and deduction amount (potentially far in excess of $100,000 annually). The only plan under which an individual can accrue a benefit in excess of $50,000 (2012) per year, subject to cost of living increases, or 25%. An actuarial report and an independent actuary’s certification are required. In order to utilize this strategy effectively, a participant must be a minimum of age 44.

2. Target Benefit Pension Plan

Utilizes a benefit goal for determining the annual contribution with a $50,000 (2012) and annual addition limitation or the lesser of 25% of annual compensation, without the necessity of an actuarial report or certification.

3. Money Purchase Pension Plan

The employer commits to contribute a predetermined percentage of the participant’s pay each year up to a maximum of the lesser of 25% of annual compensation or $50,000 (2012). As with other defined contribution plans, this plan may be structured with a tiered benefit formula based upon job classification and age and varying levels of benefits for each classification.

4. Profit Sharing Plan

A discretionarily funded Retirement Plan based upon a maximum allowable contribution of the lesser of 25% of annual compensation or $50,000 (2012). As is the case with a tiered Money Purchase Pension Plan, allocations may be based upon the Plan Sponsor providing differential benefits for employees as a function of job classification and age.

5. 401(k) Plan

Permits an employee to elect to defer part of his/her compensation into earmarked qualified retirement tax deferred accounts up to a maximum allowable annual deferral of $17,000 (2012), subject to periodic cost of living adjustments thereafter. The employer has the discretion to make 401(k) matching contributions at a certain percentage of the employee deferral amount. For those participants who attain age 50 or greater in any particular Plan Year, there is an option to defer an additional $5,500 (2012) assuming the maximum allowable amount has been deferred.

6. Employee Stock Ownership Plan

A Defined Contribution Plan, which utilizes employer stock as contributory trust assets with a 25% of annual compensation limit for contributions and deductions.

7. SEP

A Simplified Employee Pension funded into individual retirement accounts with a 25% of annual compensation limit for contributions with equivalent ratio allocations of contributions.

8. Simple Plan

A Savings Incentive Match Plan for Employees that allows employees to make elective contributions up to a maximum of $13,000 or 100% of annual compensation and requires employers to make matching or non-elective contributions.

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